Special Report: The problem with the GOCCs

(Last of two parts)

MANILA, Philippines - Running on a treadmill that is moving faster and faster is how Finance Secretary Cesar Purisima describes the work that needs to be done to fix the country’s fragile fiscal position.

One major part of the problem is the problematic situation of many government-owned and controlled corporations (GOCCs).

Finance Undersecretary for Privatization John Philip Sevilla said in a recent interview with The STAR, that many GOCCs were created in such a way that they would lose money.

The National Food Authority (NFA), with its current mandate, is one such agency. The state-owned grains agency is mandated to sell rice at low rates even if this was bought at high prices.        

But it is not only the NFA that is the problem. The government is now revisiting the mandate and operations of all GOCCs to see which ones should cease operating and which ones should be maintained.

Finance Undersecretary Jeremias Paul Jr. said there are roughly 736 state-owned agencies including water districts that would have to be reviewed.

Purisima said the direction is for the government to get out of business if such business is better left with the private sector.

“It’s important we don’t confuse the functions of these GOCCs and they are managed in accordance of the reason they were created. If they don’t serve any reason at all, our position in the Department of Finance as the economic cluster of the Cabinet is that we should consider, and we are seriously looking at closing down some of them. It’s because the private sector is there,” he said in a briefing at the House of Representatives last week.

Purisima said the government does not want to compete with the private sector.

Finance officials said that because there is not enough strict monitoring of GOCCs, some of these agencies have been getting away with numerous problems including poor management, high debts, excessive bonuses of employees and fat paychecks of officials and board members.

Purisima for instance cited that aside from the NFA, the Light Rail Transit Authority (LRTA) has incurred debts of roughly P70 billion to date.

Another example that is on the spotlight these days is the situation of state-owned water regulator Metropolitan Waterworks and Sewerage System (MWSS).

During his State of the Nation Address (SONA) last month, President Benigno Aquino III said that for 2009, MWSS’ payroll amounted to P51.4 million while additional cash benefits amounted to P160.1 million, bringing the total of P211.5 million.

The problematic finances of these GOCCs contribute to the country’s also problematic consolidated public sector financial position.

In the first half of 2009, the country’s consolidated public sector fiscal position stood at a deficit of P109.9 billion, a marked turnaround from the P48.4 billion surplus registered in the same period in 2008.

This year, the government expects the consolidated public sector deficit to hit P281.3 billion which is 3.4 percent of gross domestic product (GDP).

However, Purisima promised that the situation will not stay this way for long.

“The president has instructed us to review the way GOCCs are being managed and we are in the process of making sure that we reduce further the deficit of the country,” Purisima said.

Along this direction, Undersecretary Paul said the Finance department is now drafting an Executive Order that would reactivate an interagency group comprising of the DOF, the Department of Budget and Management and the Office of the President which would monitor the performance of all GOCCs.

The government is currently evaluating which state-owned agencies would be abolished and which would be retained.

“The next step is to come up with an EO,” Paul said.

He said the interagency group would be assessing the performance of all GOCCs to see which ones are still viable to maintain and which ones deserve to be subsidized by the government.

The performance and significance of each state-owned agency would be strictly monitored, Paul added.

Ultimately, Purisima agreed there is a need to look implement serious reforms not just at the level of the national government but also among the state-owned corporations.